Even if it feels like it, bankruptcy isn’t the worst thing that can happen to a borrower. First of all, bankruptcy helps you get rid of the old debt. On the other hand, bankruptcy stays on your record for 7 to 10 years.
So, if you want to file for bankruptcy just to trick the government and the creditors, don’t rush into it. If you’re already in a pickle, you need a plan of how to gradually recover from it.
To give you an image of what you can expect during bankruptcy, here are a few aspects:
- managing the money you have left or going to earn, starting to build the credit from scratch
- creating a trustworthy financial profile (in case you’ll need a personal loan after bankruptcy)
What Should You Do Right After Filing for Bankruptcy?
There’s a definite algorithm of what one should do after going bankrupt in order not to fall into the trap again. Consider the following steps:
Get Your Good Credit Back
Credit rating is like your financial ID. So, in order not to google the “I desperately need a loan but I have bad credit” in the future again, you have to think about building good credit while you still have the chance.
To grant yourself good credit, you should pay the bill on time. The payment operations make up 35% of the FICO credit score. If you have current debts (credit card) or due bills, cover them ASAP and make this a healthy money habit. Try to find the answer to the question how to increase credit score to 800 and do all the best to implement it in the real life.
Utility bills can also be reported and counted in favor of your credit score. Note that you have to check with your utility provider to see if they collaborate with any companies that report timely payments to credit bureaus.
If there’s no existing debt to prove your creditworthiness and discipline, you can open a secured credit card to show it. The collateral here can come from your savings account. The more you have saved, the more you can spend from the credit card.
How to Apply for a Loan for People in Bankruptcy
The situation with bankruptcy in 2021 has reached a new high. Chris Kruse, senior vice president of Epiq AACER claimed “Bankruptcy filings in April extended the spike we saw in March”. Only over the first four months of 2021 filings for bankruptcy reached a total of 147,868. If you want to recover from bankruptcy as soon as possible, follow the advice below.
While bankruptcy is a huge spot on your reputation, you shouldn’t sit with your arms folded. There are scenarios in which lenders can issue a loan for bankrupt people, but there are factors that affect their decision. These are the aspects that you should keep in mind.
#1 The Type of Bankruptcy You Filed For
There are two of them: Chapter 7 and Chapter 13. The Chapter 7 type stays on your record for up to 10 years. Your entire previous debt amount is wiped away thus the debt-to-income ratio is low and good to go for loans. This causes the credit score to increase over the next two years.
Chapter 13 implies the possibility to restrict the existing debt and repay it with your income over the next 5 years. If this is your case, be careful not to miss any payments during this period. After this time the rest of the debt is discharged and the borrower is freed from this liability.
The bankruptcy record stays with the borrower for 7 years and this worsens the credit score by 200 points.
In both cases, the moment your debt is discharged, you can apply for a new bankrupt personal loan. Also, the end time of your bankruptcy record (ten years for Chapter 7 and seven years for Chapter 13) marks the beginning of your availability period for new loans.
#2 Your Credit Score
Your credit score plays the biggest part in the loan decisions making. While some lenders will grant loans before the end of the bankruptcy record, they can charge high interest.
Income is also a vital factor for loan repayment. Thus the bigger the income is the bigger the loan amount one can apply for.
#4 The Type of Loan for Bankrupt People
Lenders will be more willing to approve secured loans. If after filing for bankruptcy, you still have some assets left, you can use them as collateral for a needful personal loan. Knowing that lenders can seize assets in case the loan isn’t repaid, borrowers have more chances to be applied for this than for an unsecured loan.
How to Prepare for a Loan After Bankruptcy
If you’re bankrupt and need a loan, you still have to make smart financial decisions. These are some of them.
Don’t Throw Away any Paperwork
Even if it doesn’t seem important at the time, you still need to save all the documents of going bankrupt. You will need those in case you’re asked for copies in the future. Financial advisors may need to see those if you apply for a loan for people with bankruptcy (e.g. mortgage) in the future.
Plus if you had your debt cleared by filing for bankruptcy, you need to have proof of that if previous of future lenders enquire.
Don’t Fall for Scams
No-credit check lending options may seem a lucrative option. But these institutions may hide fees and fines behind their loyalty to borrowers.
Applying for Loans After Being Bankrupt
- Use loan pre-qualification on the lender’s website. This doesn’t affect tor credit score but uses this figure and your income size to determine the loan options you can count on.
- Use a loan calculator to see the final cost of the loan. Make sure you borrow the sum that you’re ready to repay.
- Always study the loan agreement. In order not to lose assets and not to miss additional fees or charges, study the loan agreement before signing it.
- Repay the loan timely. Soon after the loan application follows the inevitable process of repayment. Make sure you make down payments in time to avoid accumulating debt and filing for bankruptcy again.
If you have filed for bankruptcy, look at this as a challenge to become a better spender, borrower, and investor in your future financial freedom. Even after being “between a rock and a hard place” there are always ways to recover if you’re ready to work on your financial skills.